No More Business Class for Indian Bureaucrats

New Delhi has directed all its ministries and departments to cut down on non-essential spending such as on flying business class and holding conferences in five-star hotels.

India’s nationwide swarm of bureaucrats has been ordered to slash travel and other expenses as the government desperately tries to tame the country’s fiscal deficit.

Advertisement

New Delhi issued an internal order late Wednesday, directing all its ministries and departments to cut down on non-essential spending such as on flying business class and holding conferences in five-star hotels. It also directed officers to avoid expensive trips overseas when possible. Even the babus who must travel are now not allowed to bring along companions for free.

“Such measures are intended at promoting fiscal discipline, without restricting the operational efficiency of the government,” the Finance Ministry said in the order listing out the austerity measures. “In the context of the current fiscal situation, there is a need to continue to rationalize expenditure and optimize available resources.”

If you work for the government and want to attend a seminar in Brazil on urbanization? Forget about it unless you can get someone to sponsor you, says the new order. Planned to create a new position for someone to help you manage your rubber stamp collection? You can’t do it now because there is a hiring ban. Need a new Ambassador to shuttle you around Delhi? You will have to wait. New vehicle purchases have been frozen.

The first possible casualties of the order may have surfaced Thursday when a trip by Oil Minister Veerappa Moily and oil sector officials scheduled for next week was cancelled. The minister’s office confirmed the cancellation but didn’t give a reason.

New Delhi is under pressure to improve its financial position which has come under stress in recent years due to heavy social spending at a time when tax revenue growth has been weakening because of the stubborn slowdown in the economy.

India’s fiscal deficit, or the shortfall of revenue over spending, reached a staggering 5.7% of gross domestic product in the year ended March 2012. Although the government managed to shrink it to 4.9% in the year ended this March, it still is much higher than the 3% level that authorities feel is tolerable.

The government’s recent push towards more social spending—including its flagship food security plan to provide cheap grain to more than 700 million people–has raised fears that the recent fiscal gains could be frittered away. Achieving this year’s target of reducing the deficit to 4.8% of GDP already looks difficult.

The Indian government’s fiscal deficit for the first four months of the current financial year has reached nearly two-thirds of its target for the year. The deficit for April to July reached 62.8% of the government’s full-year target.

Analysts say if the government is serious about reining in the deficit it has to go after big-ticket items like spending on subsidies, defense and salaries. Last fiscal year India spent more than $40 billion on subsidies alone.

Siddhartha Sanyal, a Mumbai-based economist with Barclays Capital, says the measures are just a baby step in the right direction. The government continues to make the mistake of focusing on reaching short-term milestones such as achieving fiscal deficit targets rather than aiming at bringing in structural changes to provide sustained savings, he said.

“It isn’t clear how the government is going to (implement) the cuts this time around,” he said.

Questions also remain about whether the Indian bureaucracy can do without their official perks and luxuries. Although no officials would openly express their displeasure, some privately admit that the steps are resented as only token attempts to help shrink to the government’s massive 16.6 trillion rupee ($269 billion) budget.

Like India Real Time on Facebook here and follow us on Twitter @WSJIndia.

About India Real Time

India Real Time offers analysis and insights into the broad range of developments in business, markets, the economy, politics, culture, sports, and entertainment that take place every single day in the world’s largest democracy. Regular posts from Wall Street Journal and Dow Jones Newswires reporters around the country provide a unique take on the main stories in the news, shed light on what else mattered and why, and give global readers a snapshot of what Indians have been talking about all week. You can contact the editors at indiarealtime(at)wsj(dot)com.